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Retail Revolution No. 2

It was an announcement that surprised both Taiwan's media and its retail sector. Hsu Chung-jen, chairman of the Commerce Development Research Institute and former president of President Chain Store Corp., declared on Jan. 6 that he would take the reins at Pxmart Co.

As Taiwan's biggest supermarket chain, Pxmart has nearly 700 stores around Taiwan, nearly as many as Taiwan's fourth largest convenience store chain, Circle K, and annual revenues of more than NT$70 billion, nearly as high as that of department store king Shin Kong Mitsukoshi.

"This is the second retail revolution in my life," Hsu says, referring to his ambitious plans to create a world-class supermarket that will have 1,000 stores by 2017 and annual sales of over NT$200 billion by 2020.

"Based on the current situation, you would think it's impossible, right? Well, just watch," says the 66-year-old Hsu in a lighthearted but confident tone.

In his 35 years with the Uni-President Group, Hsu built President Chain Store, the operator of Taiwan's 7-Eleven convenience store chain, into a retail giant with consolidated sales of more than NT$200 billion in 2013 and investment stakes in over 30 companies closely tied to the daily lives of Taiwan's consumers.

"Retail is part of my DNA," he says.

Hsu surprised everybody in 2012 when he decided to leave President Chain Store and take over as chairman of the Commerce Development Research Institute, a think tank devoted to promoting the service sector and helping it build added value. Pxmart chairman Lin Ming-hsiung recently revealed that he aggressively pursued Hsu soon after the former President Chain Store boss quit, and finally got him to agree to serve as a consultant about six months ago.

"I knew him before, but Uni-President is so big, I didn't even dare think about it," Lin says laughing. "I've always felt that just because you can conquer the world doesn't mean you can rule it. It's very fortunate, and it's a historic day for Pxmart, to be able to bring in Hsu Chung-jen as president." Lin's appreciation for Hsu is obvious from his words.

Why exactly did Taiwan's "godfather of retailing" jump back into the retail wars with a domestic supermarket chain?

Clearly, he is still eager for a personal challenge. "I've never tried to measure myself against anybody else. I've always tried to compete against myself," he says. In supermarkets, Hsu sees his next dream opportunity.

Hsu said that amid Taiwan's recent food safety scares, "My vision is to have supermarkets play their roles and harness their energy to create social well-being and bring greater satisfaction to customers." He will insist, for example, that all agricultural produce and processed foods sold in Pxmart stores be traceable.

He also notes the important roles played by supermarkets in the United States and Japan, where they developed before convenience stores and have achieved large scales while satisfying consumers' diverse needs.

In densely populated Taiwan, convenience stores now sell fresh produce, and hypermarkets allow consumers to pay basic bills, each competing on the other's turf in a business that is becoming increasingly mature. Yet Hsu still sees plenty of potential in Taiwan's supermarket sector.

Its biggest advantage, he explains, is that supermarkets like Pxmart stores sell 10,000 different items, compared with only 2,000 to 3,000 for convenience stores, and they satisfy a family's desire for a one-stop shopping experience, unlike convenience stores, which offer convenience to individuals.

As Taiwan becomes an aging society, a growing number of people will also find it difficult and less convenient to navigate the huge and complex big box retailers that have popped up around the country. Hsu firmly believes that stores like Pxmart that have close bonds with their communities can fill a niche precisely because they are neither hypermarts nor convenience stores.

Partnership with Lin Ming-hsiung

In Hsu's past life, he was given complete authority by Uni-President Group honorary chairman Kao Chin-yen to build President Chain Store in his capacity as a professional manager.

In his new venture with Pxmart, however, Hsu will be running the company as more than just a manager. He has a stake in the supermarket chain and will work alongside Pxmart chairman Lin to expand it.

Lin has always been in the media spotlight, but at the press conference to announce Hsu's hiring, he let Hsu do most of the talking and expound on the company's future plans. When Lin was asked by the media how responsibilities would be divided between him and Hsu, he answered without hesitation, "What the president (Hsu) says, goes."

"You want to make your business a success in your life, but friendship is even more important," Hsu says. "We understand and trust each other. That's very important to me."

On the part of Pxmart, it is excited to welcome Hsu onboard, hoping he can inject new vitality in an already growing brand.

Over the past 15 years, the supermarket chain has used a simple decor and a low pricing strategy to transform 66 commissaries that catered to government employees such as civil servants, military personnel, and teachers into a big supermarket chain.

More recently, Pxmart has launched an assault on a new beachhead: a second structural makeover.

Up until eight years ago, Pxmart only sold dry groceries, but it then began selling fresh produce, resulting in 10-15 percent growth in its customer base and an increase in the frequency of customer visits.

Two years ago, Pxmart launched a new sub-brand called "imart" that offered consumers more choice, such as freshly cooked food and cosmetics, helping reverse the supermarket chain's image as a vendor of only cheap merchandise.

Its next step was to invest NT$2.4 billion in a logistics park and to start accepting credit cards at the beginning of this year – indications of how quickly Pxmart is changing and the foresight of its vision. The move to accept credit cards alone has not only given consumers greater convenience, but also increased the supermarket chain's average sale per customer by 7 percent.

Hsu sees even more possibilities for growth. "Making shopping more comfortable and making it easier for consumers to select items are the things we must continually get better at," he says, citing the example of a store in Yilan where they have introduced an experimental format, with a streamlined product portfolio of 2,000 to 3,000 fewer items, allowing consumers to more easily find what they're looking for.

In the future, Hsu envisions introducing new store formats, completely traceable fresh produce, and new products that give people a sense of well-being – all approaches that could help Pxmart reach new customers.

To Hsu Chung-jen and Taiwan's retail sector, they represent a second distribution revolution that appears poised to take off.